the whole amount against the revenue of the first Lecture III. year. In the case of preliminary expenses, a certain Preliminary Expenses. amount should be charged against the revenue account say, for the first three, or five, or ten years at the most, until this balance disappears. Where plant, machinery, or property of any description is purchased under a hiring agreement, that is an agreement in which it is provided that after the lessee has paid a rent for the use of the article for a certain number of years, it shall become his absolute property on payment of a nominal sum at the expiration of the period, a company is entitled to take credit in its balance sheet for a proportionate part, after charging the revenue account with a fair and reasonable amount for wear and tear during the period under audit.

Securities.

Having finally settled the form of balance sheet of Inspection of a company, society, or public institution, the securities should be inspected by the Auditor, previous to which he should be supplied with a proper schedule dividing them into their various classes. When freehold or leasehold property forms part of the assets, the deeds should be produced, and also receipts for the last premiums on policies of insurance of perishable property.

Where a company holds stock, shares, or debentures, they should be counted; and, in the case of bonds to bearer, the Auditor should see that the coupons next due and those up to the date of repayment of the bond are attached, also any that may be overdue but which have not been paid.

The investments of a company or public institution Investments. should stand in the names of the trustees, where there are properly appointed trustee; should there be none, then in the name of two or more of the directors or council, but investments should not stand in the names of a manager or secretary alone.

Should the securities be in the custody of the

Lecture III. bankers, and it is not stated in the Accounts that they are held as security for a loan, the Auditor should be careful to ascertain that this is the fact.

Audit of a Company having Branches.

Auditor's
Report.

Concluding
Remarks.

In the case of private Audits an Auditor only inspects securities representing investments when instructed to do so by his client, but when auditing the Accounts of executors he should inspect the securities or else report that he has not done so.

Where a company has branches it is impossible, of course, for the Auditor to make such a thorough investigation as where all the records of the business are kept in one office. The returns must be examined, and the Auditor must ascertain that they are properly amalgamated with the books kept at the head office. In giving his certificate he should be careful to certify the correctness of the Accounts, subject to the returns from the branches representing accurately the transactions of their particular business.

Having completed his investigation, the Auditor, in the case of a private client, addresses a letter or report explaining the Accounts. In the case of a company, society, or institution he has to append his certificate to the Accounts. If he make a report to the directors on any matter on which he considers the shareholders should be informed, he should be careful to intimate in his certificate that such report exists, so that the shareholders may ask for it at the meeting, should the directors not print a copy of it and forward it to the shareholders with the Accounts.

It has been my endeavour in the foregoing remarks to give an outline of the general principles of an audit and the duties of an Auditor, more especially of those of an Auditor of a company, without going into those details which can only be acquired by experience; but I trust I have made it evident that auditing is accompanied with many responsibilities, and that before

anyone undertakes the duties he should be carefully Lecture III. trained.

The Chartered Accountants' Students' Society of London has been formed for the express purpose of assisting those who are desirous of acquiring, amongst other technical accomplishments, a knowledge of these duties; and, in conclusion, I hope that the few words I have addressed to you this evening may contribute in a small way towards the furtherance of the Society's aim.

F

LECTURE IV.

AUDITING.

Read before the Chartered Accountants Students' Society of London 25th October, 1887.

Lecture IV.

Reference to the preceding Lecture.

Knowledge of Auditing essential for many duties.

Having already lectured to this Society on the subject of auditing, I naturally referred to my last paper in order to avoid repetition; but it is, of course, quite impossible to give a fresh address on auditing without going over the same ground to a certain extent. It is also impossible in a lecture to give more than a general idea of an audit and the principles which should guide an Auditor in his duties, as of course every business varies from other businesses, both in the manner of conduct and in the manner of recording the result of the transactions. My remarks, however, in the course of this lecture will apply to any audit, and it is only experience which can show how the various books of account should be checked, and the statements of accounts arrived at, which it is the duty of the Auditors to examine.

Auditing forms the main portion of the duties of Chartered Accountants, for although various matters are transacted in their offices which do not bear this name, still they nevertheless come under this branch of the profession. For example: investigation of accounts of every description; the majority of the work connected with the office of liquidators of companies, trusteeships

in bankruptcy; reporting upon the accounts of executors Lecture IV. and trustees of the estates of deceased persons; giving evidence as expert or qualified witnesses, or acting generally in compensation cases, and in many other matters before the Courts, all require a knowledge of auditing. It may, therefore, be said that it is the mainstay of a Chartered Accountant's practice.

Until within the last few years, the only qualifications for the appointment of Auditor to a joint stock company was the holding of a certain number of sharesat least one-in the undertaking. Appointments were made without reference to any other qualification, and therefore, if he desired to act as Auditor when a vacancy occurred, one of the largest shareholders would be appointed; but the revelations which have been made in the Courts of the results of this kind of auditing has so startled the financial world that the amateur Auditor is fast dying out.

It is not necessary for me to discuss the training which is required for an Auditor, this being prescribed by the Institute of Chartered Accountants, and you have all of you no doubt in your possession the list of subjects which are required for the various examinations.

I

The only one of these subjects with which I am Book-keeping. at all concerned in this lecture is that one with which presume you are all thoroughly acquainted, the principle and practice of book-keeping, for without this knowledge it would of course be absurd to attempt auditing, which is the object of ascertaining whether the accounts kept by others are or are not correct.

into two classes.

Audits may be divided into two classes: the first, Audits divided where the Auditor performs the work at the request of a client who gives certain directions as to the nature of the audit required, which the Auditor carries out, his responsibility being limited to ascertaining that the accounts are in accordance with the instructions of his